As far as I understand it, the price of the physical book is a trivial portion of the cost to produce a book. The difference in price between hardcover and paperback may have misled us in this regard, but what you’re paying for with a hardcover is traditionally earlier access to the book, with greater durability as a kind of bonus. Though I do not know the details, it seems obvious that the price differential between an e-book and a physical book is far greater than the price of the physical artifact — indeed, it’s almost certainly much greater than the cost of the physical artifact plus storage and shipping costs.
What accounts for the price differential, then? Part of the problem is surely that almost no one would buy e-books if they were the same price as a paperback. Yet I propose that the real root cause is Amazon, which has already aggressively pushed down physical book prices and irrevocably damaged the profitability of traditional publishers and bookstores. They’ve already racheted down what people are willing to pay for books, and e-books give them a pretext to cut the price even further.
Hence my theory: e-books, at their current price levels, are loss-leaders meant to ensure Amazon’s long-term control over publishing. My worry, though, is not so much that they’ll raise prices once they get monopoly power, but rather that they simply won’t do the stuff that traditional publishers have done — that they’re ushering in a world of universal self-publishing, with no infrastructure for providing editing and other services to authors who are not able to pay for such services out of pocket.